Brookfield Corporation (BN) Q2 2013 Earnings Report, Transcript and Summary

Hello. This is the Chorus Call conference operator. Welcome to the Brookfield Asset Management 2013 Second Quarter Results Conference Call and Webcast. [Operator Instructions] At this time, I'd like to turn the conference over to Amar Dhotar, Investor Relations for Brookfield Asset Management. Please go ahead, Mr. Dhotar.

Thank you, Joe, and good morning, ladies and gentlemen. Thank you for joining us for our second quarter webcast and conference call. On the call with me today are Bruce Flatt, our Chief Executive Officer; and Brian Lawson, our Chief Financial Officer. Brian will start this morning discussing the highlights of our financial and operating results. Bruce will then discuss our views on the current investment and market environment, as well as a number of our major growth initiatives in the quarter. At the end of our formal comments, we will turn the call over to Joe to open up the call for questions. [Operator Instructions] I would, at this time, remind you that in responding to questions and in talking about our new initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks and future results may differ materially. For further information for investors, I would encourage you to review our annual information form or annual report, both of which are available on our website. Thank you, and I'd like to turn the call over to Brian.

Great. Thank you, Amar, and good morning. We've reported strong financial results for the second quarter. Funds from operations increased threefold to $464 million, and our consolidated net income more than doubled to $802 million. Starting with our FFO, the $300 million increase over the second quarter of 2012 is due in equal parts to improved operating results and to disposition gains, roughly $150 million each. The improved operating results reflect a return to normal generation levels in our power operations after unusually low water levels last year, as well as better pricing and the contribution from recently acquired and commissioned facilities. The impact of the ongoing U.S. housing recovery on the housing-related investments in our private equity business, most notably our panel board businesses, was another major contributor and finally, an increased level of base management fees and incentive distributions from our asset management activities. Operational highlights include the following: In our asset management activities, fee-bearing capital increased to $78 billion up from $74 billion at the beginning of the quarter and $60 billion at the beginning of the year. This led to an increase in our annualized fee base to nearly $1 billion. This fee base consists of 2 major components. First, our annualized base management fees and incentive distributions, which now stand at nearly $560 million. This is based on existing fund capital and the distributions from our listed issuers, and this represents a $55 million increase from the first quarter, reflecting increased capital committed to our private funds. And it also includes the target-carried interest from our private funds, which now stands at approximately $375 million. This number represents how much carry should accrue each year based on the carried interest we have in our private funds and their target returns. It is obviously subject to actual performance, but is intended to give you an idea of how much we stand to earn from these arrangements over time. Accumulated carry to date at quarter end stood at $765 million. That's based on actual fund performance to date. This represents an increase of $41 million during the quarter, and we realized carry of $16 million. Remember that carry typically gets realized towards the end of a fund and we do not book it until it is fully crystallized. We recorded base fees and IDRs for the quarter of $126 million, and our operating margin after attributable cost was 44%. In our property operations, our office portfolios increased -- experienced a 1% increase in net rents from existing properties. We also benefited from the completion of Brookfield Place Perth and a number of acquisitions. We leased 2 million square feet at 8% positive leasing spreads, increasing our overall in-place rents by 2% and reducing lease maturities prior to 2018 by 320 basis points. Average in-place rents remained 15% below market, giving room for potential upside. And notwithstanding the favorable leasing activity, overall occupancy is at 90.4%, which is meaningfully below potential. Part of this is because we have been selling fully leased, stabilized buildings and reinvesting in underleased buildings with more upside potential. Our primary U.S. retail portfolio, helped through GDP, experienced a 17% increase in core FFO. New leasing generated positive rental spreads of 11%. Tenant sales were $516 million [ph] on a trailing 12-month basis, and that's up 5.1%, and the lease mall occupancy was 95.9%, and that's up 160 basis points over this time last year. Turning to our power operations. Generation increased by more than 50% compared to the 2012 quarter. Roughly half of the increase was due to a return to normal hydrology levels, which added 43% -- $43 million of FFO and asset following significantly below average levels in the second quarter of 2012. Recently acquired and completed facilities added the other half of the generation and that has contributed $16 million of FFO after reflecting assumed debt and interest. Improved pricing added $17 million of FFO. This was partially offset by lower foreign currency exchange rates. At quarter end, we'd contracted 73% of our generation, mostly on a long-term basis. This percentage will decrease somewhat during 2014 and '15 due to the expiry of short-term contracts on the Smoky Mountain facilities we acquired recently, as well as one of our operations in Brazil. However, the existing price is consistent with existing market prices, which we believe gives us considerable upside potential over time. In our infrastructure portfolios, Brookfield Infrastructure's FFO increased by more than 60% to $180 million. This reflects the completion of our Australian rail expansion project, which reached full take-or-pay volumes earlier this year, the expansion of our U.K. distribution operations and other acquisitions, and improved pricing and harvest levels in our timber operations. We continued our program of recycling capital within Brookfield Infrastructure with the sale of its remaining timber operations and the New Zealand distribution business and, accordingly, Brookfield Infrastructure is extremely well-positioned to pursue a number of opportunities with its liquidity, as well as the dry powder in our private infrastructure funds. Our private equity portfolios continue to benefit from investments tied to the U.S. housing sector. Our panel board businesses experienced strong earnings growth, supported by pricing that was 50% higher than the 2012 quarter. This led to growth in FFO from $43 million to $106 million excluding gains. The stronger markets also led to the sale of one of our larger investments, Longview Fiber, for a 10x multiple on the initial capital invested and a projected third quarter gain of approximately $250 million. Our residential operations were mixed. The North American business continues to experience increasing sales and backlog, which positions us for a strong second half of the year, consistent with the typical seasonality of the business. Our Brazilian business, on the other hand, experienced lower closings in the quarter and some increased cost pressures. Some of this is due to a natural retrenchment following a period of extensive growth, but we believe the business and the country are well-positioned for the longer term. In summary, we are quite pleased with the performance across the business and in the returns that it is generating for us and for our clients. We are particularly excited about the strong momentum in our fundraising activities, which Bruce will speak to in a moment. And this has significantly increased our target base as I mentioned earlier in the remarks. Lastly, before handing the call over to Bruce, I am pleased to announce that the directors approved the regular $0.15 dividend payable at the end of November. Thank you. Bruce?

Good morning, everyone. My first comment is -- will be -- your comments will be on global flows of capital, which as far as we can see, continue to increase at a strong pace -- into real assets. This is occurring in each of our private fund strategies, our listed flagship partnership entities and our public securities mandates. With recent realizations on sales of assets and fund closings, the cash we have available for investment has increased substantially, and this includes approximately $5 billion of liquidity at our parent level and major affiliates and $10 billion of commitments for various funds, which are drawable for investment. In this regard, we raised approximately $14 billion of new investments and new funded commitments in the recent fundraising initiatives, and that included our final close of our Brookfield strategic real estate partners fund with a final size of just under $4.5 billion. In other private fundraisings, which are not yet complete, we closed commitments of over $8 billion, and we expect all of the funds we have in the market to likely be fully subscribed and close -- have final closes this year. Our public securities funds, which own listed public market real estate and infrastructure securities, have also been attracting substantial inflows as a result of very good performance records, are for family of U.S. and European mutual funds for infrastructure and real estate, has had significant net inflows of capital, in particular, our listed infrastructure securities mandates where we were one of the first global managers to establish dedicated funds for this asset class. From an investment perspective, we're being offered a variety of investment of attractive opportunities to acquire assets and assist companies with capital needs, particularly as companies refocus on their core strategies and governments continue to diversify their capital sources to deliver critical infrastructure and services. Turning to the market environment. I guess, our general view is that the grassroots improvements in the North American economies, in particular in the United States, continue to take hold as a sustained recovery in U.S. housing markets brings on increased consumer confidence. The Central Banks are clearly signaling that it's going to rein-in stimulus focused on monetary policies, but given the relatively measured recoveries that we see in North America and Europe, we expect generally a slow growth, low inflation, low interest-rate environment to persist into 2015. From what we're seeing in our businesses today, at the operations level, I guess, we have a number of comments on each of the businesses, but generally, we see U.S. housing continuing to recover at a sustained pace. Retail sales in our malls are strong. Office leasing is one place where it's slow but it's recovering. Natural gas prices are leveling out at higher levels than the extreme lows that we saw last year, but are still not back to numbers that we think are long-term sustainable numbers. Europe has stabilized but will be a long grind. Australia is clearly slower but still good, and the other emerging markets, while affected by commodity prices and volatility, we believe will continue to integrate into the world with their economies. And I guess our view is that volatility and mixed signals from each of those markets continue to offer us opportunities, which I'll talk about in a moment. Our last 5 years were focused generally on investments related to 3 things: over-leveraged developed markets; the housing collapse; and natural gas. The U.S. deleveraging and housing stories have largely played out and continue to play out, and the natural gas story is evolving. And many of our funds have benefited from these general themes that we operate with as an organization. We think 3 themes are going to be dominant over the next 36 months as they have for the past 12, and those are and continue to be Europe, where we've had a significant focus recently; the unwind of emerging markets investments as many people are exiting those countries with capital, and that presents opportunities; and thirdly, the volatility in commodities investing around infrastructure related to that. Each of our businesses generally follows the same philosophy of putting capital to work with great businesses, but we try to be patient to do so when this capital is not as readily available from conventional sources. The emerging markets, China, India, Brazil specifically, and commodity companies could not have had more robust access to capital when we look back 36 months ago, and therefore, we didn't put a lot of capital into these opportunities. But with -- as with many markets, the shift in capital flows has been very dramatic and as a result, it should present us with opportunities to invest around these companies and sectors and assist a number of people over the next 36 months, which leads me to the last comment that I was going to make, and that's basically some brief comments on real assets and interest rates and how we believe that real assets will perform over the next number of years. Investors have asked us a number of these questions and mostly because they've been worried about the effects of rising interest rates on fixed income investments and vis-à-vis -- and after that, how that affects real assets. And the bottom line, I guess in our view, is that we believe they should -- investors should be concerned about interest rates and their effect because they have no way to go but up over the longer term. And you may recall that we own no long-term bonds on our balance sheet as an indication of this conviction. Furthermore, in addition to that, we've been, for the last 4 years, we've been locking in as many long-term financings as we possibly could and we've been -- we've also now hedged almost 50% of our financings across our companies that come due even in the next 5 years. But I'd separate that from interest rates from real assets because contrary to being negative about real assets, we, in fact, believe that real assets are one of the great investments to own in this environment and while often confused with fixed income investments, they are very, very different. Our shareholder letter expands on these points in more detail and we welcome you to refer to that document. But the main reasons, in short, for our confidence in real assets are fourfold: First, most real asset income flows adjust upward with positive business conditions, inflation for both attributes, and that's probably the most important point. Secondly, interest rates for borrowing today are still at historic lows even though they've increased a little bit over the last 2 months, and fixed interest rates [ph] -- loans tied to real assets enhance equity returns as revenues increase over the longer term. Third, real assets -- in real assets, generally expenses tend to grow more slowly than the revenues and therefore, the operating margins will expand over time. And lastly, and this is the one that a lot of people are focused on, and I guess, fourth, I'd say that the cash flows earned on real assets are significantly greater than government treasury securities. In addition, as interest rates declined over the last 3 years, and largely in anticipation of future interest rate increases, people believe that cap rates should not go down as much and therefore, they did not go down as much as the treasury decreases or increases in value or decreases in rates over the last number of years. As a result of that, the spreads between the 2 continue to be at historic highs and as a consequence, there is significant room to absorb increases in treasury rates without a commensurate deterioration in capitalization rates. And there's no doubt, they will go up, but by far, we believe that the positive business conditions will adjust the revenues more than what you'll lose in the capitalization rate deterioration. We've always believed that we can invest capital into real assets on a 12% or better equity investment return. We've been able to do this for many decades and believe that this interest rate environment ahead of us does not threaten our ability to do that now or in the future, and therefore, we think these are still a great area to be invested in. And with those comments, operator, I would turn it back to you and ask if there's any questions from anyone on the line.

[Operator Instructions] The first question comes from Cherilyn Radbourne of TD Securities.

I wanted to ask you about the annualized target-carried interest metric that you introduced this quarter. And I wonder if you could just elaborate a little bit more on how we should think about that metric in relation to your future cash flow and/or the accretion of your NAV over time.

Sure, Cherilyn. It's Brian. So that -- so I think we've been relatively clear on how that's calculated, but just for the benefit of folks on the call, it's basically if you take the capital invested in our private funds and you apply our carry in those funds against the target return, net of base fees, then that is what generates the annualized carry. And that is, theoretically, what should accumulate in terms of carry over the life of the fund, assuming we hit our target returns. Now in terms of thinking about that number, there are a couple of points. One is, as I mentioned in the remarks, the returns tend to be a little bit back-ended and that's the J-curve effect as it's referred to. But basically, whilst funds are being deployed and costs, you tend to see the actual results upfront in any fund tend to get a little bit pushed towards the back end. But again, the idea is to give you some idea of what the potential is there, and over time, it should tend to level-ize out a bit as funds become more mature and you end up with a more stable -- a more diversified portfolio in terms of their vintages. So the way to think about it, in my view, is that should give you an idea of, as the business continues to mature, what the earnings potential should be in terms of carry. And we talked a bit about that at our Investor Day and what the margins ought to be on that. I think it is important to look back at how much carry we have accumulated to date, and we report on that each quarter, and that would be based on assuming we wound up all the funds today and took the actual performance to date, how much carry would we actually have accruing to us. And then of course, the other thing to track, and this is the number that we would expect to grow, assuming we hit the performance, is the amount that we actually realize in any quarter. And those will help, again, just give you a greater sense of the earnings potential of the business.

Okay. And in terms of the average investment period that you're assuming in calculating that metric, it seemed to me if anything somewhat long, so I just wondered if you could comment on whether it's consistent with your experience or what's typical for the industry.

Yes, in terms of...

The 0.85 for core and the 0.75 for private equity.

Sure, well that's -- I don't know if it's necessarily -- well, what we were assuming -- that's really to reflect that it takes you a bit of time to invest the funds upfront and it takes you a bit of time to -- and then you're monetizing them as you get closer to the maturity date. And most of our funds are around a 10-year time, so that's assuming about a 7- or 8-year hold. And for some of our investments that is -- we will be shorter than that, but some of them, we do tend to hold things for a relatively long period of time within the context of the fund life.

The next question is from Bert Powell of BMO Capital Markets. Sorry, it's Andrew Kuske of Crédit Suisse.

I guess, just a broader question, Bruce, on how you see your common equity allocation by business segment over the next, say, 5 or 10 years. Where do you anticipate the greatest growth over those timeframes?

I would -- I guess I'd make a comment that you never know where the opportunities are going to come, but we have a broad business in -- 4 operating businesses in many different countries, where we put the capital and it tends to -- our investment areas where the money goes tend to go where capital flows are going away from. And I guess the comment I'd maybe say is that over the last 3 years, a lot of more money went to the United States because of what went on after 2008 and '09, and it went to infrastructure and real estate. I'd say all of our businesses will get capital, but I think, we'll -- the United States is recovering and therefore, you're not going to see any major distress opportunities in the United States. And so it just -- generally, it goes to where capital is unavailable and where opportunities -- our money can be helpful to other organizations, and I think that will be across the board and across the businesses, but I can't actually predict other than just those few comments.

Okay. And then I guess related to that and then just the sort of contrarian investment view that you guys have at times over duration, what are your thoughts just on currency exposures, and are you seeing better value in places like South America, where there has been pretty substantial devaluation? And then as you said earlier in your prepared comments, Europe looks to be a bit of a grind for a period of time. Does that beget a lot of opportunity for you, even if you just look at things on a currency basis over the next, say, 5, 10 years?

Yes, in global investing, to make -- to be specific about the comment, Andrew, global investing has to be about 2 things, the asset class you purchased and secondly, the currency where you buy, because either you have to hedge out the risk on that currency or you're exposed to it and it's either positive or negative. So we think a lot about that. Specific to the 3 things, I guess our view is, number one, Europe will have -- will continue to have a number of opportunities and it's going to be a slow grind. It's not going to have robust growth for a long period of time, but dependent on value, there will be some excellent -- there will be more excellent opportunities like some of the ones we've been able to capitalize on recently. Second, I'd say we're seeing a significant number of commodity-related companies who had very robust access to capital 3 to 5 years ago, and now they need partners for infrastructure. And that's both our power business, which traditionally is always blocked from industrial and commodity companies, and in our infrastructure business. And I think we can -- we have established ourselves as a good partner of entities like that, and we think there will be and there should be lots of opportunities to assist those type of industrial/commodity companies, take half of or all of infrastructure assets off the balance sheet, and frankly, they can just take the money and reinvest it at a better return in their core operations. And then third, I -- to be specific about the currencies that have gone down, there's no doubt the emerging market currencies have been hit in capital. A lot of that's from capital flows coming out of the country, and that creates opportunities for people like us that go to those countries and stay for long periods of time. And we generally continue with the investments we have and we will increase our capital in those markets as opportunities come up. So we're quite excited about those opportunities, firstly, because the values are down as money exits the country, and secondly, because you're investing at better currency rates. So we're quite positive about that.

The next question is from Bert Powell with BMO Capital Markets.

Question, just on the fundraising, the $14 billion capital of funds, how much of that is already in the $70 billion of fee-bearing capital that's reported this quarter?

That would be pretty much all in there.

Okay. So there's just -- so there's nothing that's coming out -- is coming afterwards other than, I think, Bruce mentioned another $8 billion or so that at some point will close?

There's a -- yes, there's -- I'd say about $1 billion or $2 billion that may close post-June 30, but it's pretty much all in there, Bert.

Okay. And Bruce, just thinking about your comments around volatility and commodities, are assets associated with this business? Is the price -- are you getting better pricing today? I would have to think that to the extent that you have counter-party risk with commodity-associated entities, that, that has to be one, weighing on price, and probably two, probably some of your competition's backing away from bidding on those assets. But I'd be interested in any color you could offer on that front.

Bert, here's what I'd say, is that we have a bid for every infrastructure asset in the world, and we generally try to price them and we know what we'd pay for every asset that is associated with various investment companies and commodity companies, industrial companies around the world. And when money is very robust, corporations don't sell their assets because they have lots of access to capital and in addition, there are many other people that will buy them at a higher price than what we'll pay. When capital is less available to those entities and others aren't investing, people will accept the price that we have on those assets. And generally, we just wait to the point in time when people will be realistic about pricing or our pricing is actually good for them. And our sales pitch is that we can be a great long-term partner to industrial companies because we have the operating skills that we have and significant capital available to put beside them, and we can become an excellent partner longer term. And sometimes that falls on ears that aren't receptive, but in times like this, many companies are much more receptive to it if they have less access to capital. And I think we can just become a great partner for them, and when they do the math, they can put the money to work at much higher productivity. But to your last point about risk, we need to ensure we're always looking at counter-party risk of the investments, and what we look -- we always look through the investment to make sure that if we have to take over something or get involved in a different way, that we're comfortable with the asset behind. And that's, I guess, is the importance of us being in these businesses for a long period of time.

Okay. And just lastly, I know it's not a democracy, but if you were holding a vote about giving the supplemental out 3 hours before the call, I'd vote for it again.

Okay, duly noted.

The next question is from Michael Goldberg with Desjardins Securities.

By my estimate, your NAV per share is down about $2 year-to-date. I know this is due to the BPY spinoff in the first quarter and mainly FX in the second quarter. My question though is whether going forward, growth in your NAV per share, which has run at about 10% to 12% annually for more than a decade, continues at around that rate because you can still make good value investments? Or it slows as an increasing portion of growth in your intrinsic value comes from growth in the value of your asset management franchise, and if an increasing portion of your intrinsic value comes from the value of the asset manager and the franchise, what do you have to do or what can you do to better demonstrate the validity of the value of that franchise?

Okay. So Michael, that's a lot in that question. So I'll take a first stab at it, see if I follow it and then Bruce may chime in.

So the first part is, can you continue to grow your NAV at historic rates, as more of your intrinsic value is coming from your asset management franchise?

Yes, so I would say the answer to that is absolutely yes. We still feel -- we still have as a target, 12%-plus growth. And so, thinking through that, we do see continued strong growth in the asset management side. We talked a bit about some of the components of that earlier today. And with everything we see in the momentum on the fundraising side, expanding margins, getting new products in place and having that carry kick in, that to us seems to be still a very strong area of good growth. And on the -- and we still see ourselves earning the 12% return-plus on the capital that we're putting to work, and in some cases, doing better than with certain strategies. So I would say the answer, the short answer to the question is yes.

Okay. And the second part was, if an increasing portion of your intrinsic value comes from the value of your asset management and franchise, what do you have to do and what can you do to better demonstrate the validity of the value of that franchise?

Sure. So I think a lot of that comes down to -- well, first of all, one of the things we tried to do today with this release, and which we did at the Investor Day last year, was to talk a bit more about the various components and in particular, the fact that there's was a big chunk of the business that is not getting reflected in the numbers. One of that is the carried interest, we've talked more about that, and the second is on the incentive distributions, which I think as you can appreciate, they started off small, but then they grow and they grow exponentially, and over time, those will become a very meaningful contributor of cash flow to that business, and they're very stable and reliable and consistent. So those are 2 areas that are not reflected in the numbers today, and I think they will become much more evident over time and I think as people can really see that in a more tangible way. And that's really our job, is to try and convey that information to people and ensure that everything that's -- all the momentum and all the success that that's occurring in the business gets properly reflected in the numbers and understood by investors. So I think we're making good progress in that regard.

Okay. Now my understanding is BPY's commitment to the new real estate fund isn't funded, but as the fund makes acquisitions and BPY funds that commitment, should we expect that BAM is likely to participate?

So where we stand today is that BPY does have a -- there is a bridge debt facility in there between BAM and BPY that will be replaced very shortly with more traditional banking facilities. So BPY does have good access to its own cash resources and will be harvesting its own assets as well to provide the necessary liquidity to fund its share of the capital that gets deployed through the opportunity to fund. And if there are larger initiatives that come along and it makes sense, just like in any part of our business, BAM could participate. But really, if we look to the listed issuers, first, to the private fund and second, to the listed issuers, in being the primary sources of capital.

Okay. And lastly, you previously excluded the fair value decrement of Brookfield in Corpora Suez [ph], I'm probably not pronouncing that right, because you said there had been no long-term impairment in that value. But now you are including it. Is this to say that you now believe that there has been an impairment, and I know it's a small piece of BAM, but can you give us a little update on this situation?

No, I wouldn't read anything into that, Michael, in terms of our change in how we did it. I think we're just -- most of the figures in that column reflect the stock market prices. And if you've noticed throughout the supplemental, we try to provide more visibility as to the -- where the listed -- all the various listed entities fit into our invested capital, so we're really just being, I'll say, consistent with it. But no, our view on the long-term value of that businesses has not changed, and we think it -- so I wouldn't read anything into that.

The next question is from Alex Avery with CIBC.

Bruce, in your letter to shareholders and your introductory comments, you talked about, I guess, the opportunities over the last few years being predominantly in over-levered developed countries and perhaps, the next real opportunities being more in the developing parts of the world. Highlighting China, India and Brazil, obviously you've been heavily in Brazil for a long time. Are we to read that you're thinking that there's now more prospect for BAM to directly invest in India and China?

So firstly, thanks for that Alex. I'd say first that when we talk about different countries and capital flows going in and out, we think of it in 2 different ways, and I'd refer to our strategy in Europe over the last 4 years, and the strategy in Europe has been to get to know a lot of organizations in Europe in a better way so that we can assist them with their capital requirements. And what's come out of that is some opportunities in Europe where we've closed on 3 or 4 large transactions, but we've closed on many more than that with European companies of assets they owned elsewhere. So I'd say the first thing is our local businesses in those countries are extremely important to our global franchise, not only to find opportunities in those countries, but to also source opportunities for us from companies in those countries who are looking to sell things. And that, I guess, is point number one. Point number two, we've been in Brazil a long time and have significant investments there and will continue to invest. In India, we've been there for 5 years. We've not put a lot of capital in, but we've learned a lot over 5 years, and we will continue to put increasingly more money into the country as we feel comfortable with the investment environment and currencies being down, and money exiting the country will mean that we probably will put more money there than we have in the past. And in China, specifically, we have 2 or 3 investments in the country and I think there could be opportunities over time to invest there, but we'll have to see.

And you've got a lot of capital in Brazil at this point. Recently, General Growth sold its interest in Allianz. How does that reconcile with your view on Brazil being an interesting place to add more capital? Or is it just that you have enough there already, or was that not an asset that was specifically of interest to you?

I'd just say 2 things. We're in the business of earning good returns on capital and from time to time, trimming the portfolio, and we probably, I think we've sold $5 billion or $7 billion of assets in the first 6 months of this year. So we're always buying assets and we're often selling assets. That one specifically was in another -- in a public company. It was the only asset in Brazil and we weren't comfortable with the management team doing what they did. So it really has nothing to do with Brazil as an investment area. It just fits the strategy at that time in that asset or fund. And so often, we're buying and selling things at the same time for various different reasons.

Okay, and then, I guess, just trying to reconcile the developing versus developed and your comments about Europe. It sounds like perhaps, you're seeing Europe as sort of in the sweet spot right now, with a window here where you can continue to put some capital to work, but it probably doesn't last for several more years?

No, I think it lasts a long time. We don't see any robust recovery of Europe in the next years. So we think there will be increasing numbers of opportunities coming in Europe just because people -- finally, the period of high volatility is over, the banks are getting recapitalized, and what that means is that transactions will occur. And so we do think there will be opportunities for many years.

The next question comes from Mark Rothschild of Canaccord Genuity.

Bruce, you spoke about -- you had mentioned in the letter and you spoke about that if interest rates go up, generally there's a corresponding positive impact on real estate or real asset values due to economic growth. Could it be that interest rates go up, or long-term interest rates go up over the next year rather due to a pullback of stimulus as opposed to economic growth in some parts of the world? And if that would happen, would you still be as bullish on asset value over the next year or 2?

There is 1 scenario which I guess is traditionally called stagflation, which you get no economic recovery and interest rates go up. And that's not good for any business that's out there, including probably our business. The only thing I'd tell you is there's nothing that we see with the economic situation that would tell us that, that's occurring. And furthermore, I think the treasury departments of almost every country in the world have indicated they're going to keep interest rates low until economic recovery starts to take hold. So I guess, the 1 scenario is there's a total blowout of interest rates because of -- people are worried about debt situations of countries. And we just haven't seen that yet, but that's the 1 scenario, I guess, that could occur and we don't think it will but it's possible.

And sorry, Mark, if one of the things you're suggesting was, is there a, call it, 7,500, whatever base 50, whatever basis points that's in there in the rates today, due solely to what -- the Fed, for example, is up to, as opposed to the economic growth implications for increasing rates. I think the other comment that Bruce made earlier is there has been -- the cap rate compression hasn't matched the decline in the risk-free rates either, and so therefore, there is a buffer in place that would absorb something like that.

Great. And just following up on that point, share prices -- prices for many REITs have taken quite a hit, in particular in Canada, with your more bullish view, are you seeing more opportunities in the public market, perhaps, for growth?

We always look at the public markets and the private markets. The fact is it's much easier for us to buy things from people that need capital as opposed to compete in the public markets, generally. Having said that, from time to time, we do and it just depends on the opportunity.

[Operator Instructions] There's a follow-up question from Michael Goldberg of Desjardins Securities.

Given dispositions since the end of June in the group, what amount of realization gains will be recognized in FFO over the remainder of 2013?

So Michael, the one that we've given, I'll say some indication of, is with respect to Longview, the manufacturing business there, and we indicated that should be around $250 million in the third quarter. We haven't provided any guidance on the other ones.

Well, you're on the phone now, it's public. Do you want to take the opportunity?

No.

This concludes the time allotted for questions. I'll turn the conference over to Mr. Dhotar.

Thank you very much for joining us today. We look forward to updating you next quarter. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.